What if you had $10k to invest? Hypothetical portfolio analysis

A hypothetical portfolio

Suppose if I had only US$10,000 to invest, what stocks would I pick? Well we could just easily say that we choose only the Magnificent Seven (M7), made up of Apple, Microsoft, Meta, Nvidia, Alphabet, Amazon & Tesla. However that would mean that our stocks are heavily concentrated in technology, communication services and consumer discretionary and would result in a highly unbalanced portfolio that might leave us to quite some downside risk should the market crash, as most of these stocks have similar correlations in price movements.

Let’s say we are only allowed to pick 2 of the M7, so I would choose Alphabet & Amazon. Alphabet is the parent company of Google, YouTube and are used by millions, if not billions worldwide. Alphabet’s EPS is expected to grow at 16.6% for the next 5 years. Amazon owns their e-commerce business, and the real profit driver is in Amazon Web Services, which provides on-demand cloud computing platforms and APIs to individuals, companies, and governments, on a metered, pay-as-you-go basis. Amazon’s EPS is expected to growth at 28.5% for the next 5 years.

Healthcare 

Next I would look at the healthcare sector. According to McKinsey, the healthcare sector is expected to grow at a 10% CAGR between 2021 and 2026, as technology adoption by healthcare providers and payers continue to accelerate and the world has an ageing population in most developed countries.

One of the companies I would pick would be Elevance Health, which is a managed health benefits company, supporting consumers, families, and communities across the entire care journey connecting to the care, support, and resources to lead healthier lives. It serves people through a portfolio of medical, digital, pharmacy, behavioural, clinical, and care solutions. Elevance’s EPS expected growth rate for next 5 years is currently 12.1%.

The next I would go for IHI ETF, which is the iShares US Medical Devices ETF, its top four holdings include Abbott Laboratories, Intuitive Surgical Inc, Medtronic PLC, and Stryker Corp. The U.S. medical devices market size was valued at USD 143.64 billion in 2022 and is estimated to reach around USD 246.51 billion by 2032, growing at a CAGR of 5.6% from 2023 to 2032, according to Precedence Research.

Financial Services

Lastly, I would pick a financial services company, in which I would choose Intercontinental Exchange, which is the parent company of the New York Stock Exchange. It engages in the provision of market infrastructure, data services, and technology solutions for financial institutions, corporations, and government entities in the United States, the United Kingdom, the European Union, Singapore, India, Abu Dhabi, Israel, and Canada. ICE’s expected growth rate is currently at 7.4%.

2023 returns

A hypothetical $10k portfolio 

Assuming that the weightage of the 5 stocks is equal, and that fractional shares are allowed. Taking the close price on the first trading day of 2023, I worked out how many shares of each stock was bought. Next we take the last close price last week, which is December 9, 2023 at the time of this writing. Our returns in Alphabet and Amazon would be 51% and 71% respectively. Next would be Intercontinental Exchange return for the year at 9.7%. Unfortunately our healthcare stocks are slightly underperforming this year, as most of the S&P 500 returns this year have been driven by technology, communication services and consumer discretionary. Our hypothetical portfolio would have increased by 24.89% as of December 9, 2023 close, which is slightly better than the S&P 500 year-to-date return of 20.4%!

@TigerStars 

@CaptainTiger 

$Alphabet(GOOGL)$ 

$Amazon.com(AMZN)$ 

$SPDR S&P 500 ETF Trust(SPY)$